Focus on Israel

by Chris Lyddon
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Israel is almost completely dependent on imported grain, both for food and animal feed. The Black Sea has been a very important source, but the export bans imposed by Russia and Ukraine have limited supplies and forced millers to consider other origins.

The International Grains Council (IGC) predicts total Israeli grain imports at 3.4 million tonnes in 2011-12, up from 3.3 million in the previous year. The figure includes 1.8 million tonnes of wheat, up from 1.5 million, 1.1 million tonnes of maize, down from 1.3 million, while barley imports were estimated at a steady 400,000 tonnes.

Production is small. The U.S. Department of Agriculture (USDA) attaché put the 10-year average for wheat at 137,000 tonnes, in an annual report published earlier this year.

“The Israeli feed milling industry shifts easily from corn, barley and sorghum to feed wheat, depending on price,” the attaché said. “Many Israeli traders consider the Black Sea Basin (BSB) a ‘natural’ source for grains due to its proximity and the convenience of small shipments. However, whenever there is a shortage of grains from the BSB, the market share of U.S. grains increases significantly.”

Grain imports increased in 2009-10 despite the restriction on supplies from Ukraine and Russia. Total grain import demand in MY 2009-10 increased by nearly 5% compared to the previous year (from 3 million tonnes to 3.16 million tonnes) and reached a record high.

There was, however, a fall in milling wheat imports that year. “The decrease was mainly due to relatively high stocks of milling wheat combined with restricted supplies of milling wheat from Ukraine, Russia and Hungary,” the attaché said. “Despite the global rise in commodity prices combined with the fact that Israel is a net food importer, the Israeli government did not subsidize or changed tariffs on any grains (all grains enter Israel duty-free).”

However, the attaché noted that the sharp increase in food prices did not lead to the same problems as in some other food import dependent countries and inflation was at 2.7% in 2010, within government targets.

The rise in international prices did not lead to an increase in the planted area of wheat, although there was a 430% increase in maize production, to 8,000 hectares.

“In the coming decades, experts predict difficulties in the ability to produce food due to world population growth and climate change,” the attaché said. “Therefore, Israel must prepare for a possible shortage of staple foods in the next two decades and consider replacing current agricultural crops with wheat.”

“In order to overcome the scarcity in natural resources, particularly arable land, Israel may have to give up crops like sunflower seed and cotton in the Jezreel Valley (North of Israel) in favor of wheat,” the report said. “It is estimated that Israel will be able to increase its local wheat production by about 50,000 tonnes.”

“In addition, Israel may have to decide to cut down on food exports in order to provide food for its population,” it said. “According to the Israeli experts, in view of the climate crisis the Agriculture Ministry will have to consider new R&D strategies such as genetic research to develop wheat that is more resistant to dry conditions, as we face in Israel.”

OECD looks at the sector

The Organization for Economic Cooperation and Development describes agriculture in Israel on its website as, “unique amongst developed countries in that land and water resources are nearly all state-owned and that agricultural production is dominated by cooperative communities. Since the late 1980s, agriculture in Israel has benefited from a stable macroeconomic climate; policy reforms; high levels of investment in R&D; a developed education system; high-performing extension services; and accumulated farm management expertise.

“Israel is a world leader in agricultural technology, particularly in farming in arid conditions,” it said. “Israeli agriculture thus relies on an ‘induced,’ rather than ‘natural,’ comparative advantage, one built on knowledge and technological progress.”

The OECD published, last year, a detailed report on agriculture in Israel. “Government support to Israeli farmers has fallen over recent years, but a number of market-distorting policies are still in place,” the OECD said. “More efficient water resource management remains a critical challenge.”

According to the OECD, government support to farmers accounts for 17% of total farm receipts, below both its 24% share in the mid 1990s and the current OECD average of 23%.

“However, high border protection for a number of agricultural commodities is keeping domestic prices above international market levels,” it said. “Recent reforms in Israel have substantially increased efficiency of agriculture and its environmental performance, especially water use efficiency, but have nevertheless left a large part of the production planning system intact.

“In particular, the state remains strongly involved in the allocation of key factors of production such as land, labor and water,” it said.

“Israeli agriculture has benefited from high levels of investment in research and development and is a world leader in certain technologies linked to farming in arid conditions, especially drip irrigation,” the OECD said. “A key challenge for Israeli agriculture will be reconciling the growing pressures of climate change and population on already scarce land and water resources.”

Milling industry

According to the attaché, human consumption of wheat in Israel is steady at about 875,000 tonnes a year. Therefore, any variation in total annual consumption is a result of changes in wheat for feed use, and changes in demand by the Palestinian Authority.

There are 19 flour milling companies in Israel with a total capacity of 1.2 to 1.4 million tonnes, according to the attaché.

“Due to expected continued restricted supplies of feed wheat and barley from Eastern Europe and the BSB in MY 2010-11, the local feed milling industry is shifting to corn and sorghum on the account of feed wheat and barley,” the attaché said.

The attaché said that about 90% of the local feed milling industry is controlled by seven feed millers. The total market for Israeli feed is estimated at 2.3 to 2.55 million tonnes of mixed grains per year.

Low supplies from the Black Sea did not hand the U.S. extra market share in 2009-10, the attaché explained. Imports of U.S. milling wheat fell from 314,000 tonnes in 2008-09 to 200,000 tonnes in 2009-10.

“The decrease in imports of U.S. milling wheat was mainly due to the fact that the Israeli milling industry succeeded in getting quotas for milling wheat from Ukraine,” the attaché said. “All in all, the market share of U.S. milling wheat decreased 30 percent compared to the previous year.”

That meant a reduction from a market share of 33% in 2008-09 to a 23% share in 2009-10.

“Usually milling wheat imports for Israel are being supplied by Russia, Ukraine, the U.S., Kazakhstan, Hungary, Germany and France,” the report said. “Imports of milling wheat (light wheat) from France are mainly for the Passover period.”

How U.S. wheat does in the new marketing year depends on Black Sea supplies. “If limited supplies of milling wheat from Ukraine and Russia will continue, the American milling wheat share is expected to total about five percent,” the attaché said. “On the other hand, if Ukraine and Russia will have good harvests, the American share will total about 25 percent.”

Israel does maintain an emergency stock. “The emergency milling wheat stocks in July are usually at a record high and are estimated at 165,000 tonnes,” the attaché said. “Stocks generally decline from July through May and then begin rebounding again in the spring with the onset of the harvest."